What If the Recession Does Turn Into a Depression?

It’s far from certain — it’s even a fairly remote possibility — but the possibility of an economic depression is being discussed more and more these days. As is to be expected, the discussion tends to be centered around how much of what we’re used to having could be destroyed. As worthwhile as it is to brace for the damage an economic depression could wreak, this is Thanksgiving weekend — a time to reflect on what we do have, and what opportunities we see ahead. Not “opportunities” as in exploiting those in need during hard times, but as in adapting to and serving changing needs.

A recent story in the Boston Globe that looked at the social changes a depression could bring got me thinking about how web companies might respond. The core strategy of the web’s biggest successes to date — make it faster, cheaper, more useful — doesn’t have to evolve much to respond to the dramatic shifts we’d see.

In the Globe’s article, staff writer Drake Bennett sees a 2009 depression unfolding differently from the 1930s: not bread lines, but long lines at emergency rooms; not migration from dust bowls to California, but an exodus from exurbs to cities. Durability would trump fashion, frugality and escapism would rule, and people might grow more isolated.

Again, this is all a mighty big “if,” and just speculation. But let’s imagine for a moment that a depression does descend upon us — how would the web adapt?

Let’s start with escapism. As Bennett noted, “The Depression was, famously, a boom time for movies.” As the current recession deepens, online video is already providing a contemporary equal in Hulu and other sources of free content.

The proliferation of online video, however, leads us to the issue of isolation. Here another recent web obsession, social networking, could come into play. Networks that pull people out of their houses — Meetup.com, say, or those that recruit people to do volunteer work — could become new stars.

The economic malaise is increasingly leaving thousands of skilled people with time on their hands. But the open-source ethic and user-generation spirit that has defined the web could be harnessed for group creation of new technologies as well as a new generation of entrepreneurs. Even a depression wouldn’t diminish the web’s power to help us promote our talents, so it could still churn forth labor-of-love innovations.

Free content, of course, will become more sought after than it was in the boom times. And while it will be difficult to generate revenue with a free (see: ad-supported) model, such an approach could become a way for cash-rich companies to build market share: Google is the most obvious beneficiary, but a free model could also offer leverage for Microsoft and even a life raft for Yahoo. Bartering could become more popular, which makes eBay’s current traffic decline hard to understand. Perhaps it will open a door for a rival upstart.

A quote this week from Lawrence Summers (yes, in declining to regulate derivatives in the 90s, he helped sow the seeds of this mess; and yes, he was also tapped to help clean it up) summed this up well: “All financial crises end — and when they end, they end in ways that create spectacular opportunity.”

Whether this financial crisis ends with the economy recovering quickly or stalling for years, web companies will end up with more than their share of opportunity. Either way, now is as good a time as any to begin wondering what those opportunities will be.
Chart courtesy of MarketWatch.